Myths about credit cards and debt

As with everything else credit cards also be considered to have a negative reputation.

Everyone is an expert at certain things, and what seems to be the most notable in my research into this subject is that the majority of credit card experts haven’t been employed by an organization that deals with credit cards. Even those who appear suspicious. In my case I am not claiming that I am an authority in this field. What you’ll find here is a brief summary of the data I’ve amassed. I’ll attempt to make it transparent and objective. In the same way I’m going to note that there isn’t any tangible evidence that can support the majority of the myths floating around over the Internet.

Let’s first take care of credit card debt and debt. According to my research, the most frequently requested item is the cost of paying off credit card debt. The ultimate answer is “Sort out.” Actually, the opposite is the truth and the reason seems to be logical. The benefits of having less or no debt is greater credit acceptance, which implies it’s much easier to secure personal loans from local banks. Rates of interest are also reduced due to the assumption that people pay their bills on timeand keep all credit cards that have zero balances that prevents the accumulation of bad debt.

However the person who has a excessive debt will be penalized by greater interest rates and restricted choice of sources to obtain personal loan. The definition of what is the term “bad debt” is an uninformed decision, which is determined by the specific circumstances. A bad debt is defined as debt that has an extremely high rate of interest that is affixed to the original loan. For example, taking out the house loan for 4.5 percent is not considered to be bad debt, and neither purchasing a car or motorcycle for 7%. In this case is the event of defaulting on the loan for a motorcycle or car regardless of the reason. While at the same time opening several credit accounts that have unpaid amounts, some of that are nearing limits, could be another instance of bad debt.

A little debt can be a great thing

At times it’s impossible to stay out of a certain amount of debt. But credit card companies offer those with scores of credit near the top of the scale, between 350 and 850. They also offer lower rates and greater limits for their accounts. The entire range of the average credit score is between 300 and 850 points with up to 31% of that number is derived from how much debt an individual is in. The more debt an individual has the less their score will be.

In the majority of instances, the debt of a person can be attributed to credit card debt that are voluntarily created, which indicates that the applicant sought out and was deemed as a risky credit risk because of their score. It is important to note that I mentioned score, not rating. Ratings pertain to things like corporate bonds or mortgage-backed securities and which aren’t to be used for “Joe who is the customer.” Credit scores are the information consumers get from a credit report, which contains information on lenders, personal information as well as collections and inquiries in relation to loans and outstanding amount.

Maintenance of debt

Naturally, the best way to avoid the burden of debt is to pay for everything and anything in cash. We aren’t all blessed with the ability to do this unfortunately. In this regard it is important to think about when we are dealing with credit cards the importance of making sure that we pay the entire amount whenever it is possible. This can help to avoid excessive charges for interest due to minimal or late payments. This is another example of bad debt when there are unpaid payments, but only the minimal amount made. This is only going to hurt one’s credit in the long term.

For car loans and home loans, the cost is the amount of a few dollars every month to the total amount and could reduce the interest charged of these loans. It’s true that the majority of a mortgage’s repayment is based on the interest. Similar to the car loan. Naturally the dispute over credit card debt is settled now. Credit card companies offer less debt while penalizing more debt. In other words, lower or nearly no debt means less or even lower rates of interest and a greater likelihood of obtaining personal loans. It’s quite opposite in situations where more debt is incurred.

Like everything else, credit cards can also have a bad reputation

Everyone is an expert on something, and what seems to stand out in my research on this topic is that most credit card experts have never worked for a credit card company. Even those individuals who seem sketchy. As for myself, I do not claim to be an expert on the subject. What you will read here is a summary of the information I have gathered. I will try to make it completely clear and subjective. At the same time, I must point out that there is little objective evidence to support most of the myths circulating on the Internet.

First, let’s address debt and credit cards. In my research, the predominant request is avoiding paying off credit card debt. The final answer is a resounding “Sort of.” In fact, the opposite is true, and the reasons seem logical. The rewards of having little or no debt are greater credit acceptance, which means it’s easier to get a personal loan from a local bank. Interest rates also become lower due to the fact or assumption that they pay their bills on time, keeping any credit cards with a zero balance, which avoids building up bad debt.

On the other hand, a person with relatively high debt is penalized with higher interest rates and a limited choice of resources for personal loans. The definition of what constitutes a bad debt is an arbitrary conclusion that is really determined by the circumstances. Bad debt can be thought of as debt with a high interest rate attached to the original loan. For example, getting a home loan at 4.5% is not bad debt, nor is buying a car or motorcycle at 7%. A bad debt in this scenario would be a default on a car or motorcycle loan for any reason. At the same time, opening many credit accounts simultaneously with unpaid balances, some of which are approaching the limit, is another example of bad debt.

Some debt is a good thing

From time to time, it is impossible to avoid a certain level of debt. However, credit card companies reward those people who have a credit score near the high end of the spectrum, between 650 and 850, with lower rates and higher limits on their accounts. The full range of a typical credit score is between 300 and 850 points, where up to 31% of that figure comes from the amount of debt a person has. The more debt a person has, the lower their score will be.

In a large number of cases, a person’s debt is due to credit cards that arise voluntarily, indicating that the individual applied for and was accepted as a significant credit risk due to their current score. Note I said score, not rating. Ratings are for things like mortgage-backed securities or corporate bonds, not for “Joe the consumer.” A credit score is what a consumer receives through a credit report that lists lenders, personal information, inquiries and collections related to loans and outstanding amounts.

Debt maintenance

Obviously, the best way to avoid debt is to pay for anything and everything in cash. Very few of us have that ability, unfortunately. With this in mind, we must consider when dealing with a credit card the importance of paying it in full whenever possible. This helps avoid unnecessary interest accrued due to minimum or missed payments. Again, this is an example of bad debt where there are missed payments and only the minimum is paid. This will only hurt a person’s credit in the long run.

In the case of home loans and vehicle loans, the fee adds a few dollars each month to the amount and can reduce the amount of interest on these loans. Let’s face it, a significant portion of a mortgage payment is based on interest. It’s the same with a car loan. Naturally, the credit card debt dispute has been settled for now. Credit card companies reward relatively lower debt and penalize relatively higher debt. That being said, less or almost no debt means better/lower interest rates with a higher probability of getting personal loans. Where it is quite the opposite in cases where a higher level of debt arises.